3Q2020 Gross Domestic Product: Second Estimate

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In its second estimate of 3Q2020 gross domestic product (GDP), the Bureau of Economic Analysis (BEA) left the growth rate of the U.S. economy essentially unchanged at a seasonally adjusted and annualized rate (SAAR) of +33.06% (+33.1% expected), down 0.02 percentage point (PP) from the “advance” estimate (“3Qv1”) but +64.45PP from 2Q2020.

As with 3Qv1, two groupings of GDP components -- personal consumption expenditures (PCE) and private domestic investment (PDI) -- were the drivers behind the expansion, whereas net exports (NetX) and government consumption expenditures (GCE) made minor negative offsets.

This report contained no material revisions. Generally speaking, some of the growth in consumer spending was shifted from services to goods, while reducing the overall consumer spending by 0.06PP. Growth in commercial and private fixed investments was adjusted upward by 0.27PP, but that was offset by downward adjustments to inventories, governmental spending and imports. As for details:

PCE. Consumer spending for goods reportedly grew at a 9.49PP rate, up 0.25PP from 3Qv1 and +11.55PP from 2Q. Spending on services added 15.73PP, down 0.31PP from 3Qv1 but +37.68PP from 2Q. The combined consumer contribution to the headline was +25.22PP, down 0.05PP from 3Qv1.

PDI. The contribution from commercial/private fixed investments was 5.23PP, up 0.27PP from 3Qv1 and +10.50PP from 2Q. Inventories added 6.55PP to the headline, down 0.07PP from 3Qv1 but +10.05PP from 2Q.

NetX. Exports added 4.95PP, up 0.05PP from 3Qv1 and +14.46PP from 2Q. Imports subtracted 8.12PP, down 0.13PP from 3Qv1 and -18.25PP from 2Q. On net, foreign trade subtracted 3.17PP from the headline.

GCE. Governmental spending was revised to -0.76PP, down 0.08PP from 3Qv1 and -1.53PP from 2Q.

The BEA's real final sales of domestic product -- which ignores inventories -- was revised upward (+0.05PP) to a level 54.40PP above the 2Q estimate. 

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“The revisions in this report are statistical noise that is immaterial relative to the unprecedented contraction during 2Q and 3Q's equally unprecedented (albeit partial) rebound shown in this report's headline number,” wrote Consumer Metric Institute’s Rick Davis.

“Unfortunately, the current recession will play out over the period covering at least the twelve months 4Q2020 through 3Q2021. The speed, logistics and demographics of the vaccine distributions will initially monopolize mainstream media headlines, while the less newsworthy economic damage will likely persist long after the vaccinations are done. The real fear is that US ‘Mom & Pop’ entrepreneurs -- retail, dining and services -- have been crushed in ways that will require many more quarters of recovery.

“As always,” Davis concluded, “the winners will be the entities with the deepest pockets.”

The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.